Many people worry about their credit score and how it will impact their experience buying a new home. Even if you have great credit, you could still make a mistake during the home buying process that could potentially temporarily disqualify you from buying a home. As the saying goes, “It’s not over ‘til it’s over.” This is true of the home buying process. Even if you have been pre-approved for a mortgage, if your credit score takes a hit during the home buying process and has changed by the time you get to closing you may not end up being able to close on the loan you need to finalize your purchase. For this reason, it is important to be very careful with your finances when buying a home so that your credit score is not impacted. Below are 3 things that can affect your credit score and temporarily disqualify you from buying a home. By learning these 3 common mistakes you can avoid making a credit score mistake that derails your home buying process.
1. Closing a Credit Card
Many buyers mistakenly think that if they have multiple lines of credit and they close a credit card they do not often use that it will increase their credit score. But, in reality, the opposite is true. As long as there is no balance on a credit card or other line of credit there is no need to close that credit card right now. And, if you do it will probably lower your credit score and delay your ability to close on a new home.
2. Opening a New Line of Credit
Another big red flag for lenders when you are buying a home is opening a new line of credit. It can be tempting to open that no interest line of credit with the local mattress store but don’t do it – yet. Rather, open that line of credit after you have closed on your new home because opening a new line of credit will temporarily lower your credit score. Additionally, if you open a new credit card and make a big purchase it will impact your debt-to-income ratio which may decrease the loan amount that you qualify for.
3. Missing Payments On a Line of Credit
Now is not the time to skip a payment on your credit card or miss a payment on your auto loan. Don’t even think about skipping one big payment so that you can have a higher down payment on your new home. Being delinquent on any line of credit can lower your credit score and make you a less desirable loan candidate in the eyes of a mortgage lender.